Mexico’s challenge to the IMF

June 4, 2011

In his quixotic bid to lead the International Monetary Fund, Mexico’s central bank chief Agustin Carstens set off this week on a world tour to make his case that it is time that emerging-market countries took a leadership role at the fund — and that he is the man for the job.

A respected, orthodox economist, credited with helping transform Mexico from a crisis-prone roller coaster into a beacon of stability in Latin America, Carstens faces tough odds to beat French Finance Minister Christine Lagarde and may even face rivalry for support among developing nations from Kazakhstan’s central bank governor, Grigory Marchenko.

The athletic, chic Lagarde is Europe’s favorite to replace former IMF managing director Dominique Strauss-Kahn, now under house arrest in New York City facing charges of sexual assault against a hotel maid. And so far, only Uruguay has announced support for the Mexican banker, famous here for his impressive girth and his obsessive quest to keep inflation at bay.

But there is still a sense that Carstens’s candidacy is changing the game when it comes to appointing the head of the IMF — and, by extension, also changing U.S. dominance over the post of World Bank president, the Japanese sinecure atop the Asian Development Bank, and other jobs that have been part of a polite, international spoils system.

At least, this time, there’s a choice — not a European dictat.

“The fund has been in existence for 65 years, and for 65 years it has always been under the management of the Europeans. For the last 33 years, 26 years had been under the management of the French,” Carstens, 52, said in an interview. “I wouldn’t be campaigning if I didn’t believe my candidacy was viable.”

As an expert in international finance and former ranking fund employee, central banker Carstens may arguably have the stronger technical resume, some Washington-based analysts say. Carstens dates his credentials to his teenage years, when Mexico’s 25 percent inflation rate led to animated family conversations about economics.

“You know, I never had much money as a kid, but I remember we had a lot of discussions at home about inflation, exchange rates and devaluation, though at that stage I didn’t know they were called ‘macroeconomic problems,’ ” said Carstens, who holds a doctorate from the University of Chicago.

The IMF board hopes to make a decision this month, and Carstens said he plans to visit Argentina, Canada, Portugal, India, China, Japan and Washington to ask for support. He followed Lagarde to Brazil on Wednesday, where his influential neighbors have been coy about their intentions. He is considered a staunch conservative and his focus on inflation might comfort like-minded Europeans in countries like Germany, but could unnerve a nation like Brazil, struggling to accommodate a rush of incoming international capital that is both fueling growth and pushing up prices.

Even analysts sympathetic with Carstens’s campaign regard him as a long shot: because the Europeans organized quickly around Lagarde and want to keep the post; because the emerging markets won’t likely find a common candidate; because the United States will try to stay neutral for fear of offending either side or losing its prerogatives at the fund or the World Bank.

“I don’t oppose having Christine Lagarde as long as she is elected and not crowned,” said Moises Naim, a senior fellow at the Carnegie Endowment for International Peace and a critic of an IMF selection process he feels is only “disguised” to appear open.

Implicit in Mexico’s bid — and in the broader argument among emerging markets — is the fact that developing nations are mostly thriving after decades of crisis. Carstens in particular defended Mexico’s performance. In the midst of a vicious drug war, which has left more than 35,000 dead and has consumed the attention of President Felipe Calderon’s government, Mexico weathered the downturn in 2009 and has returned to a path of steady growth.

It is Europe that now stumbles, with large IMF loans approved over the past year for Greece, Ireland and Portugal, and more likely to be needed.

In Brasilia, Carstens said he thought the fund would gain more legitimacy facing current difficulties in Europe if it had a non-European managing director — much like Europeans led IMF programs for Asian and Latin countries during their bad years. Carstens served as executive director of the fund and deputy managing director of the IMF from 2003 to 2006. He says he understands the institution “from a perspective of 360 degrees.”

“The problems get more complicated because the world has become more interconnected,” Carstens said. “Right now we have huge challenges in Europe and we will have big challenges in the Middle East and North Africa, because those regions are starting a process of very important political and economical transformation.

“We have made an important transformation in Mexico. In the past, we had sequential crises, we were a very crisis prone economy, and now we are not.”

Carstens said that he has gotten “expressions of sympathy” from some countries but has not named them.

“I feel so far that the selection process has been adequate. Yes, there are people who have criticized me, others who have praised me, but that is the nature of the game,” he said.

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